Tuesday, April 22, 2008

FTC Determination that Rambus Abused Standard-Setting Process Vacated

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The Federal Trade Commission failed to demonstrate that Rambus Inc.’s actions before a standard setting organization (SSO) amounted to exclusionary conduct “under settled principles of antitrust law,” the U.S. Court of Appeals in Washington, D.C. has decided. Thus, the agency did not prove that the licensor of computer memory technologies unlawfully acquired its monopoly power in the relevant markets for four technologies that had been incorporated into industry standards for dynamic random access memory (DRAM) chips.

The court set aside a Commission opinion finding Rambus engaged in monopolistic conduct in violation of the FTC Act (2006-2 Trade Cases ¶75,364), as well as the Commission’s remedy order (2007-1 Trade Cases ¶75,585).

The FTC determined that Rambus, while participating in the standard-setting process in the 1990s, deceptively failed to disclose to the SSO the patent interests it held in the four DRAM technologies. According to the agency, Rambus’s deceptive conduct before the SSO significantly contributed to its acquisition of monopoly power.

Anticompetitive Effect

“Deceptive conduct—like any other kind—must have an anticompetitive effect in order to form the basis of a monopolization claim,” the court explained. Even if Rambus’s conduct was deceptive, the Commission did not demonstrate that the company inflicted any harm on competition.

The court said that the Commission’s conclusion that Rambus’s conduct was exclusionary depended on a syllogism: “Rambus avoided one of two outcomes by not disclosing its patent interests; the avoidance of either of those outcomes was anticompetitive; therefore Rambus’s nondisclosure was anticompetitive.”

The Commission determined that if Rambus fully disclosed its intellectual property, then the SSO either would have excluded Rambus’s patented technologies from its DRAMstandards or would have demanded assurances of “reasonable and nondiscriminatory” license fees (RAND assurances), the court explained. The Commission did not, however, determine that one or the other of these two possible outcomes was more likely.

Assuming that avoidance of the first of these possible outcomes was anticompetitive, that Rambus’s more complete disclosure would have caused the SSO to adopt a different standard, then Rambus’s failure to disclose harmed competition. But there was insufficient evidence that the SSO would have standardized other technologies had it known the full scope of Rambus’s intellectual property.

The Commission’s syllogism could not survive because the loss of a RAND commitment from Rambus would not harm competition. The SSO’s loss of an opportunity to seek favorable licensing terms was not an antitrust harm, in the court’s view.

Remand

In ordering remand to the Commission for further proceedings, the court questioned whether there was sufficient evidence that Rambus engaged in deceptive conduct at all. It expressed “serious concerns about strength of the evidence relied on to support some of the Commission’s crucial findings regarding the scope of [the SSO’s] patent disclosure policies and Rambus’s alleged violation of those policies.” The court described the Commission’s findings as “murky” and pointed to instance where the Commission took an “aggressive interpretation of rather weak evidence.”

Rambus Statement

Rambus issued an April 22 statement that it was “very pleased with this decision.” The company said that “the decision, especially combined with the jury verdict in March reaching the same conclusion, should put the issue to rest and allow us to focus on running our business.”

In a March 26 press release, Rambus announced that a jury in the federal district court in San Jose, California, found in its favor in an antitrust case brought by memory manufacturers Hynix Semiconductor, Micron Technologies, and Nanya TechnologyCorporation. The jury determined that Rambus acted properly while a member of the standard-setting organization, according to Rambus.